Monday, 27 March 2023

Crypto News

Crypto industry braces for impact with Silvergate exit

Crypto industry braces for impact with Silvergate exit

Silvergate is not a systematic risk for the United States banking system, but it could have a significant impact on the crypto markets, multiple sources told Cointelegraph. These may include increasing banking concentration in a few partners and challenges for venture capital firms seeking to establish banking relationships in the country.

The bank was a crypto-fiat gateway network for financial institutions and one of the major on-ramps for cryptocurrencies in the United States until March 8, when its parent company, Silvergate Capital Corporation, disclosed plans to “voluntarily liquidate” assets and shut down operations.

The move affects a “huge number of market markers and exchanges” that relied on the bank to process instant crypto-fiat transactions, explained Mark Lurie, CEO and co-founder of Shipyard Software, a decentralized development company. As Silvergate winds down operations, risk concentration in the industry would also increase, with few banks still partnering with crypto firms.

“I never would have thought that an FDIC-insured bank involved in the industry would actually fail. This is certainly a setback and there will be implications that will reverberate across the digital asset industry for some time. I suspect that it will be difficult for a while for crypto ventures to acquire banking relationships in the United States given the regulatory measures of late,” crypto mainstay Charlie Shrem told Cointelegraph.

Related: Gemini’s banking relationship with JPMorgan ‘remains intact’

Crypto exchange FTX’s collapse led to extensive liquidity problems at Silvergate, although the bank had already been affected earlier in 2022 by the downturn in crypto markets. Outflows in last year’s fourth quarter resulted in a $1 billion net loss attributable to common shareholders. In the previous quarter, the transfer volume on the Silvergate Exchange Network was at $112.6 billion, a $50 billion plummet compared to Q3 2021.

“The bank had attracted a lot of crypto deposits, and as knock-on effects of FTX contagion started to catch up, the banks faced substantial deposits’ outflow. This forced them to sell off bonds, resulting in material losses as interest rates increased recently,” explained a spokesperson from Finery Markets, adding that:

“A downward spiral ensued with rapidly worsening capital adequacy ratios, which led to more clients withdrawing funds. […] This could potentially mean a certain trend towards crypto moving outside the US, at…

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